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  • Forthcoming
  • Article
  • Journal of Financial Economics

Core Earnings: New Data and Evidence

By: Ethan Rouen, Eric C. So and Charles C.Y. Wang
  • Format:Print
  • | Pages:71
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Abstract

Using a novel dataset, we show that components of firms' GAAP earnings stemming from ancillary business activities or transitory shocks are significant in frequency and magnitude. These components have grown over time and are dispersed across various sections of the 10-K. Excluding them from GAAP earnings yields a core earnings measure that distinguishes between the recurring and non-recurring components of net income and forecasts future performance. Analysts and market participants are slow to impound these earnings components' implications, particularly the amounts disclosed in footnotes. Trading strategies that exploit non-core earnings produce abnormal returns of 8% per year.

Keywords

Core Earnings; Transitory Earnings; Non-operating Earnings; Quantitative Disclosures; Equity Valuation; Big Data; Business Earnings; Financial Reporting

Citation

Rouen, Ethan, Eric C. So, and Charles C.Y. Wang. "Core Earnings: New Data and Evidence." Journal of Financial Economics (forthcoming).
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About The Authors

Ethan C. Rouen

Accounting and Management
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Charles C.Y. Wang

Accounting and Management
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More from the Authors
  • Societal and environmental issues are pressing and companies must transform if they intend to remain competitive By: Ethan Rouen and Georgios Serafeim
  • Misaki Capital and Sangetsu Corporation (B) By: Charles C.Y. Wang, Akiko Saito and Nobuo Sato
  • Evaluating Firm-Level Expected-Return Proxies: Implications for Estimating Treatment Effects By: Charles M.C. Lee, Eric C. So and Charles C.Y. Wang
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